£5bn bill as inflation hits 5%

Analysts expect consumer price inflation to rise towards 5%, its highest for three years, intensifying the squeeze on living standards

Inflation could hit 5% this week, landing the government with a £5 billion
bill for increased state benefits. The rise means misery for salary earners,
intensifying the squeeze on living standards.

Analysts expect consumer price inflation, currently 4.5%, to rise towards 5%,
its highest for three years, with some predicting it could exceed the 5.2%
peak of three years ago. The figure has been boosted by gas and electricity
price increases.

“Overall we would expect borrowing to rise by around £5 billion,” said Alan
Clarke, an economist with Scotia Capital. September’s inflation rate is used
for uprating welfare benefits, which take effect next April. Most benefits
are linked to the consumer prices index, though the basic state pension is
tied to the retail prices index. This is likely to rise to about 5.5%.

Official figures last week showed that earnings, excluding bonuses, are rising
by only 1.8%. The rise in